IMF Revises Global Growth Up to 5.2% For 2007 and 2008
Citing continuing strong global expansion , the International Monetary Fund has revised upwards its projections for economic growth in both 2007 and 2008 to 5.2 % from 4.9 % at the time of its April 2007 World Economic Outlook.
In the first in a series of World Economic Outlook Updates, to be posted between the full Spring and Fall WEO reports, the IMF made upward revisions for emerging market and developing countries, with growth projections substantially marked up for China, India, and Russia. Growth in the United States is now expected at 2% this year—0.2 percentage point lower than projected in April—although activity should regain momentum through the year and return to potential by mid-2008. Growth projections for the euro area, particularly Germany, and Japan have also been raised.
Risks to this favorable outlook remain modestly tilted to the downside.
Inflation remains generally well contained despite strong global growth, although some emerging market and developing countries have faced rising inflation pressures, especially from energy and food prices, the IMF said. Oil prices have risen back toward record highs against the backdrop of limited spare production capacity, while food prices have been boosted by supply shortages and increased use of biofuels.
With sustained strong growth, supply constraints are tightening and inflation risks have edged up since April, increasing the likelihood that central banks will need to further tighten monetary policy. The risk of an oil price spike remains a concern.
In an accompanying Financial Market Update, the IMF’s Monetary and Capital Markets Department says financial market risks have increased as credit quality has deteriorated in some sectors and market volatility has increased. However, so far, the assessment is that this risk is likely to remain largely contained. Importantly, markets are discriminating on the strength of underlying fundamentals, and recent corrections have been concentrated in subprime, leveraged loan and lower quality corporate bonds. The ongoing adjustments in the structured credit and leveraged finance markets should help bolster credit discipline while the capacity of market participants to discriminate according to fundamentals will be important going forward.
A number of other risks, however, look more balanced. In particular, while the correction in the housing sector is continuing, overall downside risks related to U.S. domestic demand have diminished somewhat.
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